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Friday, 31 March 2017

Asian shares were mixed and the dollar extended its overnight gains on Friday on signs of strong U.S. economic growth, while the euro inched up after sliding overnight on data suggesting slowing growth in Europe.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS retreated 0.15 percent, as investors balanced positions on the last day of the month and quarter. The benchmark is up almost 13 percent for the quarter.

Activity in China's manufacturing sector expanded to 51.8 in March, an official survey showed, beating expectations for 51.6. The services sector rose to 55.1 from 54.2 in February. The 50-point mark separates growth from contraction.

The data comes as U.S. President Donald Trump foreshadowed a tense meeting with Chinese President Xi Jinping next week by tweeting on Thursday that the United States could no longer tolerate massive trade deficits and job losses.

Trump also tweeted that the meeting, which is also expected to cover differences over North Korea and China's strategic ambitions in the South China Sea, "will be a very difficult one".

Vice Foreign Minister Zheng Zeguang said on Friday that China does not have a policy to devalue its currency to promote exports, and neither does China seek a trade surplus with the United States.

"The Trump comments on Xi aren't material, although they may weigh slightly on Asian sentiment, with trade discussions, being a known risk in the increasingly protectionist Trump era," said Angus Gluskie, managing director of White Funds Management in Sydney.

Japan's Nikkei .N225 jumped 0.6 percent after Japanese core consumer prices rose 0.2 percent in February. While that is the fastest annual pace in nearly two years, it is still a far cry from the central bank's 2 percent target.

The Japanese benchmark is set to end the first quarter up 0.3 percent.

The South African rand dropped to a seven-week low after President Jacob Zuma sacked finance minister Pravin Gordhan in a cabinet reshuffle after days of speculation that has rocked the country's markets and currency, replacing him with home affairs minister Malusi Gigaba.

A statement from the president's office just after midnight on Thursday said Zuma had also appointed Sfiso Buthelezi as Deputy Finance Minister replacing Mcebisi Jonas.

The weakened rand saw the dollar up 0.9 percent at 13.4075 rand ZAR=, on track to end the week almost 8 percent higher.

Overnight, all three major Wall Street indexes closed about 0.3 percent higher after fourth-quarter annualized growth in U.S. gross domestic product was revised up from the previously reported figure. Consumer spending growth was also revised up.

The upbeat data also helped lift the dollar.

The dollar index .DXY, which tracks the greenback against a basket of six peers, rose 0.1 percent to 100.51, after hitting a two-week high on Thursday. Despite this week's gains - it is up almost 1.7 percent since Monday's four-month low - the greenback is set to end the quarter 1.7 percent lower.

The dollar added 0.2 percent to 112.125 yen after Thursday's 0.8 percent jump, but is heading for a 4 percent quarterly decline.

Nervousness could return to U.S. markets over concerns about the ties between Trump's presidential campaign and Russia. Trump's former national security adviser, Michael Flynn, has discussed with congressional committees the possibility of giving testimony in their investigations of potential ties between the Trump campaign and Russia, his lawyer said on Thursday.

"Looking forward, this is important," Gluskie said. "The stability of the Trump administration appears to be critical to markets. As markets have shown over recent weeks, if Trump’s position is undermined by security issues or a reticent right wing Congress, investors are likely to respond negatively."

The euro inched up slightly to $1.068 in an effort to make up some of Thursday's 0.8 percent tumble. The common currency is on track to post a gain of 1 percent for March and 1.5 percent for the quarter.

Data showed German and Spanish consumer inflation slowed more than expected in March on a pull back in oil prices, disappointing investors who were hoping for a wind down of the European Central Bank's monetary stimulus.

In commodities, oil prices retreated early on Friday.

U.S. crude slipped 0.2 percent to $50.24 a barrel. On Thursday, it closed 1.7 percent higher after zipping to a three-week-high earlier in the session after Kuwait backed an extension of OPEC production cuts.

It is heading for a 6.4 percent loss for the week.

Global benchmark Brent lost 0.25 percent to $52.83 and is on track for a 7 percent decline for the quarter.

Gold XAU= pulled back 0.1 percent to $1,241.41 an ounce, extending Thursday's 0.7 percent loss on the dollar's strength, but remains set for a 7.8 percent quarterly gain.

U.S. stocks were little changed on Thursday as the upwardly revised fourth-quarter GDP growth rate underscored strength in the domestic economy, while investors looked ahead to the start of first-quarter earnings season.

The market has been choppy in the past few days as investors look for new catalysts and assess the impact of Republicans' failure to pass a healthcare bill on tax reform and the rest of President Donald Trump's pro-growth agenda, hopes for which have helped drive stocks to record highs.

But the rally may be near its peak, according to a Reuters poll of strategists, who forecast U.S. shares will gain less than 3 percent between now and year-end. The S&P has risen 10.3 percent since the U.S. election through Wednesday's close.

The rapid climb in equities has raised concerns regarding valuations, with the S&P 500 trading at nearly 18 times earnings estimates for the next 12 months against its long-term average of 15 times.

The market will be looking at quarterly earnings to see if the lofty valuations can be supported. First-quarter earnings for S&P 500 companies are expected to rise 10.1 percent, according to Thomson Reuters

"The market is looking for new catalysts in the form of fresh policy news from the Trump administration that can help regain the confidence in his pro-growth mandate after the healthcare bill disappointment," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

"Investors are also looking ahead to earnings to see if companies can deliver what the market has already priced in with the current valuations."

At 9:33 a.m. ET the Dow Jones Industrial Average .DJI was up 1.17 points, or 0.01 percent, at 20,660.49.

The S&P 500 .SPX was down 0.65 points, or 0.02 percent, at 2,360.48.

The Nasdaq Composite .IXIC was up 2.11 points, or 0.04 percent, at 5,899.66.

Seven of the 11 major S&P sectors were higher, with the energy index's .SPNY 0.51 percent rise leading the advancers.

Economic data showed that the number of Americans filing for unemployment benefits fell less than expected last week, with initial claims slipping 3,000 to 258,000 for the week ended March 25.

Cleveland Fed President Loretta Mester, Dallas Fed chief Robert Kaplan, San Francisco Fed head John Williams and New York Fed President William Dudley are all scheduled to make appearances.

Shares of Lululemon Athletica plunged 21.3 percent to $52.16 after the Canadian yoga and leisure apparel retailer said first-quarter comparable sales were expected to fall.

ConocoPhillips (COP.N) rose 6.3 percent to $48.94 after the company said it agreed to sell oil sands and western Canadian natural gas assets to Cenovus Energy. Cenovus was down 10.1 percent at $11.76.

Advancing issues outnumbered decliners on the NYSE by 1,271 to 1,164. On the Nasdaq, 1,119 issues rose and 960 fell.

The S&P 500 index showed four new 52-week highs and no new lows, while the Nasdaq recorded 30 new highs and seven new lows.

Thursday, 30 March 2017

European Central Bank policymakers are wary of making any new change to their policy message in April after small tweaks this month upset investors and raised the specter of surging borrowing costs for the bloc's indebted periphery,

One of the officials, who are in or close to the Governing Council, even said the ECB had been overinterpreted by markets at its March 9 meeting.

Taken aback when markets started to price in an interest rate hike early next year, policymakers are keen to reassure investors that their easy-money policy is far from ending, suggesting a reluctance to change message before June, the sources said.

The euro, the bloc's government bond yields and banking stocks fell after the Reuters article was first published.

While the current level of bond yields remains acceptable, a further increase would be problematic, particularly in places like Italy, Spain and Portugal, where debt payments are a major cost item and rising yields would curb spending and thwart growth.

With the euro zone economy on its best run in almost a decade and conservative policymakers keen to start winding down stimulus, the ECB gave a small nod to improvement with a tweak of its guidance in early March, axing a reference to being ready to act with all available instruments.

But that message did not come across as hoped.

"We wanted to communicate reduced tail risk but the market took it as a step to the exit," one of the sources said. "The message was way overinterpreted."

Indeed, yields surged and investors quickly priced in a rate hike for the first quarter of 2018, even as policymakers tried in vain to play down those expectations.

The market move was exacerbated when Austrian central bank chief Ewald Nowotny openly discussed another possible change in bank's guidance, hinting at a major debate under the surface -- speculation that the sources dismissed.

ECB Chief Economist Peter Praet has been in damage control mode since, arguing that there is "strong logic" backing up the guidance, which stipulates that asset buys would have to end before any interest rate hike.

The ECB declined to comment.

With inflation below the ECB's target for four straight years until recently, the bank has cut rates deep into negative territory and plans to buy at least 2.3 trillion euros worth of bonds, all in the hope of cutting borrowing costs enough to revive growth and, with it, inflation.

NIGHTMARE

Some have argued that with the economy on more solid footing, the ECB could soon eliminate the punitive interest rate charge, raising the deposit rate to zero, even as asset purchases continue.

"That would be a communication nightmare," one of the sources said. "If you raise rates, you can't communicate that it's a one-off, only back to zero, then we stop again."

"The market would immediately price in a new rate path, pushing the entire curve sharply higher."

With the euro zone government debt at 91.3 percent of GDP, not far below the 94.5 percent peak hit in 2014, governments can hardly afford big rises in borrowing costs that could cap public spending, thwarting investment and growth.

The sources also argued that the market may not be accurately pricing risks related to the new U.S. administration, like the possibility of trade wars, protectionism, financial deregulation or President Donald Trump's difficulty in pushing his agenda through Congress.

Banks, the biggest losers from negative rates, have meanwhile benefited from the steepening of the yield curve this year so there is no urgency to give them a hand, the sources added.

Inflation having hit 2 percent last month, essentially meeting the ECB's target, also put some pressure on policymaker as German criticism of loose monetary policy heated up.

"Inflation has peaked for now and the oil price is down 10 percent so we are far from having to worry about too much inflation," a third source said.

While the sources acknowledged unexpected strength in the underlying economy, they said it was difficult to communicate this through policy statements, especially with underlying inflation showing few signs of moving up.

"A small change in the wording can easily be blown out of proportion," one of the sources said. "There is a communication risk and I would argue for stability."

Asian shares turned lower on Thursday after earlier briefly nudging up to near two-year highs, while the dollar benefited from waning expectations that the European Central Bank was poised to end its easy policy.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.3 percent, stepping back from morning trade when it nudged close its loftiest levels since June 2015.

Australian shares firmed 0.3 percent, helped by an overnight gain in oil prices. Strong energy shares had helped the U.S. S&P 500 .SPX end higher overnight.

The Federal Reserve's monetary outlook and policymaking under U.S. President Donald Trump have held sway in financial markets over the past few months. While investors have more or less come to terms with rising rates in the United States, concerns remain around the Trump administration's ability to set U.S. growth on a higher gear.

Last week's failure of Trump's U.S. healthcare reform bill reinforced those doubts.

The dollar index, which tracks the U.S. currency against a basket of six major rivals, was up 0.1 percent on the day at 100.060 .DXY. It was lifted to a one-week high overnight as the euro slipped on concerns about the impact of Brexit as well as news that ECB policymakers are keen to reassure investors that their easy-money policy is far from ending.

The euro was down 0.1 percent at $1.0750 EUR=, after Reuters reported ECB policymakers were wary of changing their policy message after tweaks this month upset investors and raised chances of a surge in borrowing costs.

Prime Minister Theresa May formally began Britain's exit from the European Union on Wednesday, launching a two-year negotiation process before the divorce comes into effect in late March 2019.

Sterling edged up slightly on the day to $1.2445 after skidding to a one-week low of $1.2377 overnight.

"Brexit, to some extent, has been covered in the market already. People went short, covered, and went short again," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

"As for the dollar, demand is still steady from pure commercial orders, but the Japanese fiscal year ends this week and Tokyo investors don't want to take new positions," Ogino said.

Against the yen, the dollar added 0.2 percent to 111.27 JPY=, well above this week's low of 110.110, its lowest since Nov. 18, following Trump's healthcare reform blow.

Despite the dollar's gains on the day, it was far lower than levels above 115 yen hit a few weeks ago, and Japan's Nikkei stock index .N225 slipped 0.3 percent.

"Investors have bought Japanese stocks mainly because of the strong dollar-yen trend. Trump's healthcare defeat threw a wet blanket on the Japan market's rally since last November," said Takuya Takahashi, a strategist at Daiwa Securities.

Japanese stocks soared more than 10 percent since Trump's election on hopes his administration would boost U.S. economic growth to 3 percent or even higher.

The healthcare setback raised fears that Trump might face challenges in getting his promised stimulus and tax reform policies passed as well, which pressured the greenback and U.S. Treasury yields.

But underpinning the dollar, Chicago Federal Reserve President Charles Evans, a voter on the policy-setting Federal Open Market Committee, said on Wednesday he supports further interest rate hikes this year given progress on the Fed's goals of full employment and stable inflation.

Comments from Boston Fed President Eric Rosengren and San Francisco Fed President John Williams also backed multiple rate hikes, though those officials are non-FOMC voters.

"There's a huge political fog around the world, in Asia, in the U.S., but underneath it, there's actually quite a decent economic recovery. And that's what's driving markets more than the worries about politics," said Sean Taylor, Asia Pacific chief investment officer at Deutsche Asset Management.

"The U.S. is continuing to do well. Europe isn’t doing as badly as it was and because of the commodity pickup last year, emerging markets are doing okay," he said.

U.S. crude futures edged down 0.1 percent to $49.48 a barrel in Asian trading, while Brent crude futures eased 0.1 percent to $52.35.

Oil prices had surged more than 2 percent on Wednesday as U.S. crude inventories grew less than expected, supply disruptions continued in Libya and the OPEC-led output cut looked likely to be extended.

Wednesday, 29 March 2017

Asian shares inched ahead on Wednesday while the dollar and commodities held gains as investors shook off disappointment about U.S. President Donald Trump's failed healthcare bill and focused on an improving outlook for global growth.

The good cheer did not extend to the pound which was on the skids as the British government sent a letter to Brussels formally starting the country's exit from the European Union.

Japan's Nikkei .N225 added 0.1 percent, with a number of ex-dividend stocks cutting around 130 points from the index. Spreadbetters pointed to moderate opening gains for European bourses, while S&P 500 futures added 0.1 percent.

The Dow snapped an eight-day losing streak, its longest run of losses since 2011, in part as a survey showed consumer confidence surged to a more than 16-year high.

"Economic fundamentals still remain exceedingly sound here in 2017 and you do not need Trump's pro-growth fiscal agenda for this to be one of the best years for growth since the recovery started," argued Tom Porcelli, chief U.S. economist at RBC Capital Markets.

"We still think tax reform happens, but you are better off thinking about the timing as an end of year event at best."

The dollar bounced from 4-month lows as a top Federal Reserve official talked of more rate hikes to come while political uncertainties surrounding Britain's exit from the EU pressured European currencies.

Fed Vice Chairman Stanley Fischer, one of the more influential policymakers with markets, said two more rate increases this year seemed "about right".

B-DAY

The pound shed a further 0.3 percent to $1.2414 after British Prime Minister Theresa May signed a letter notifying the EU of Britain's intention to leave the bloc.

The Brexit letter is due to be delivered to Brussels later on Wednesday, triggering years of uncertain negotiations that will test the endurance of the European Union.

That came a day after the Scottish Parliament voted in favor of a second independence referendum that would break up the UK.

The euro pulled back to $1.0811, while the dollar bounced to 111.20 yen JPY=. Against a basket of currencies, the dollar was steady around 99.756 .DXY.

The biggest loser overnight was the South African rand which has shed almost five percent in two sessions on speculation well-respected Finance Minister Pravin Gordhan might lose his job.

Oil prices gained after a severe disruption to Libyan oil supplies and as officials suggested the Organization of the Petroleum Exporting Countries and other producers could extend output cuts to the end of the year.

U.S. crude added 19 cents to $48.56 a barrel, while Brent rose 15 cents to $51.48.

The dollar steadied on Tuesday after its worst week since U.S. President Donald Trump’s election in November, promises of more rises in Federal Reserve interest rates this year helping it recover from multi-month lows in still shaky global markets.

A dip in iron ore prices as European markets began trading helped weaken higher-risk currencies including the Australian and Canadian dollars.

The index that measures the broader strength of their U.S. counterpart .DXY was trading almost half a percent above Monday's four-and-a-half month low but it was up just 0.1 percent on the day after a volatile Asian session.

The yen, which has gained 4 percent in nine days as faith in the Trump White House's ability to deliver tax reform and a promised public spending boost, was flat at 110.74 yen per dollar. JPY=

Analysts pointed to support from appearances by Dallas Federal Reserve Bank President Robert Kaplan and Chicago Fed chief Charles Evans as putting the emphasis back on the prospect of more rises in U.S. interest rates.

"Clearly we shouldn't forget we are going to see at least two more hikes by the Fed this year and that there is still the potential for the next one to be pulled forward to June," said CIBC strategist Jeremy Stretch.

"There is probably also a realization that after the vote on Friday, it may well be the case that Trump's moving away from healthcare reform and towards fiscal issues may be constructive from a market perspective."

The Republicans' failure to pass a replacement for Obamacare was the trigger on Monday for a deepening of doubts about the Trump administration's ability to pass other legislation through Congress.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo said those concerns meant the bias remained towards more dollar weakness.

"But a one-way drop by the dollar is also unlikely as the Republicans cannot face midterm elections in November of next year without enacting a single fiscal stimulus step," he said.

The euro was down just 0.1 percent at $1.0854 EUR=, after reaching $1.0906 in the previous session, its highest since Nov. 11.

The Aussie, battered by the weakening in global sentiment and a fall in the prices China pays for its iron ore, was down 0.3 percent. AUD=

Tuesday, 28 March 2017

Asian stocks advanced on Tuesday after Wall Street steadied and the dollar bounced from a four-month-low, as anxiety over Donald Trump's setback on healthcare reform gave way to tentative hopes for the U.S. President's planned stimulus policies.

Japan's Nikkei .N225 jumped 1 percent, its biggest one-day gain in more than two weeks, while Australian stocks were up 1.1 percent.

South Korean stocks .KS11 climbed 0.3 percent after data showed the domestic economy grew at a slightly faster pace than initially thought in the fourth quarter of 2016, supported by strong construction activity.

Hong Kong's main Hang Seng .HSI added 0.6 percent.

China's market was one of the region's underperformers, with the CSI 300 .CSI300 index about 0.2 percent lower and the Shanghai Composite .SSEC down 0.4 percent.

Overnight, the S&P 500 .SPX and the Dow Jones Industrial Average .DJI closed lower but had narrowed their losses from earlier in the session, when both hit near-six-week lows. The Nasdaq .IXIC ended higher.

Risk appetite had evaporated after Trump's failure to garner enough support last week to pass a bill repealing the Affordable Care Act, former President Barack Obama's signature health care bill, even with a Republican-controlled Congress.

That blow for Trump spooked global risk assets on concerns about the president's ability to enact stimulus policies. The MSCI World index, which had stumbled last week, managed to recover, as confidence returned that the Trump administration will corral Congressional support for other pro-growth policies.

"Markets appear reluctant to take the Trump disappointment too much further at this stage," Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.

"With U.S. economic growth showing signs of improvement and the (Federal Reserve) clearly embarked on a monetary tightening cycle, the significant correction that has already occurred in bonds and the U.S. dollar may already reflect an adequate wind-back of the market’s Trump exuberance."

The U.S. 10-year bond yield, which hit a one-month low on Monday, was steady at 2.3746 percent on Tuesday.

The dollar was also little changed at 110.62 yen after recovering from its lowest level since November on Monday.

The dollar index .DXY inched up to 99.23 after slumping to a 4-1/2-month low on Monday.

The euro was steady at $1.0861 on Tuesday, after touching its highest point since November on Monday.

In commodities, the return of risk appetite and the dollar's relative weakness helped lift oil from a level close to the 3-1/2-month low seen last week, but gains were capped by lingering concerns about whether OPEC-led output cuts can offset surging U.S. production.

U.S. crude gained 0.5 percent to $47.97 a barrel, after dropping as much as 1.9 percent on Monday.

Global benchmark crude rose 0.4 percent to $50.95.

Gold was little changed at 1,253.41 an ounce on Tuesday, after pulling back from the one-month-high hit on Monday.

U.S. stocks were well off session lows on Monday as investors sought bargains after a rough start on Wall Street following the defeat of President Donald Trump's first major legislative action.

Republicans were forced to pull a healthcare bill on Friday after failing to gather the votes needed in Congress to repeal and replace the Affordable Care Act also called Obamacare.

The bill's failure led investors to question Trump's ability to deliver on his ambitious agenda of tax cuts and simpler regulations - key catalysts that have sparked a record-setting rally on Wall Street.

"With the economy continuing to improve, I would look at any pullback as a buying opportunity at this point in time," Watkins said.

At 12:49 p.m. ET, the Dow Jones Industrial Average .DJI was down 59.46 points, or 0.29 percent, at 20,537.26, the S&P 500 .SPX was down 5.17 points, or 0.22 percent, at 2,338.81 and the Nasdaq Composite .IXIC was down 0.34 points, or 0.01 percent, at 5,828.40.

The S&P 500 financial index came off a two-month low on Monday, while other major S&P sectors trimmed losses.

Healthcare was the only sector in the black, propelled by gains in drugmakers and hospital operators.

Prices of safe-haven gold pared some gains after hitting a one-month high, while the CBOE Volatility index .VIX, Wall Street's fear gauge, eased from the day's high of 15.11.

Still, the Dow remained on track for the eighth straight day of losses - its longest losing streak since 2011.

Declining issues outnumbered advancers on the NYSE by 1,754 to 1,127. On the Nasdaq, 1,511 issues fell and 1,248 advanced.

The S&P 500 index showed 11 new 52-week highs and seven lows, while the Nasdaq recorded 44 new highs and 45 new lows.

Monday, 27 March 2017

The dollar slid to a near two-month low against a basket of currencies on Monday as concerns mounted about the chances of U.S. fiscal stimulus after President Donald Trump's failure to push through a healthcare reform bill.

Trump's inability to deliver on a major election campaign promise marked a big setback for a Republican president whose own party controls Congress, and raised doubts whether he will be able to push through tax reforms and mega-spending packages.

"Concerns towards the Trump administration have been reignited after his healthcare legislation setback. This is resulting in a bout of risk aversion weighing on the dollar," said Shin Kadota, senior strategist at Barclays in Tokyo.

"There isn't much going for the dollar right now and the market will be bracing for its further decline."

Dragged down by declining U.S. yields, the dollar index against a basket of major currencies was down 0.4 percent at 99.258, its lowest since Feb. 2.

The index had risen to a 14-year high near 104.00 early in January when expectations for significant stimulus under the Trump presidency were at their peak.

U.S. equity index futures fell to a six-week low, in a sign of stress for Wall Street stocks which had ascended record peaks at the start of the month.

"Speculators are likely to close out their yen-selling positions and buy back the currency if U.S. stocks and yields continue adjusting lower and hurt risk sentiment," said Koji Fukaya, president at FPG Securities in Tokyo.

Against the safe-haven yen, the dollar fell more than one percent to 110.260, its weakest since Nov. 22. It last traded at 110.335 yen.

Earlier in the session, the euro touched $1.0850, its highest since Dec. 8, and it was hovering near that level by the afternoon in Asia.

Some analysts were less pessimistic about Trump's chances of success pursuing his economic agenda.

"There is a widespread perception that failure to pass the healthcare bill somehow derails the rest of the Trump agenda," said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

"We think linking this particularly difficult legislative undertaking with the rest of the Trump is flawed," he argued. "It actually presents a scenario where tax reform can potentially be accelerated."

Others, however, including much of the mainstream press wondered how Trump would get any major changes through such a fractious Congress.

"It clearly highlights that divides remain, and it means that the policy paralysis that was often evident over recent years could linger," wrote analysts at ANZ in a note.

"With fiscal policy uncertainty rising again, the risk is that business and consumer sentiment reverse recent gains, which would have growth consequences."

Against the sagging dollar, the pound was up 1.2 percent at $1.2527, reversing the previous day's losses when the currency fell as investors braced for Britain beginning the formal process of leaving the European Union this week.

The Australian dollar was steady at $0.7629 and the New Zealand dollar rose 0.2 percent to $0.70

China will substantially cut the number of sectors closed to foreign investment, its central bank governor said on Sunday.

But Zhou Xiochuan of the People's Bank of China (PBOC) also said that as his country opens wider, "we want China to get fair treatment overseas".

Among financial sectors targeted for further opening in China were banking, insurance, investment banking, securities firms, and payments, he told the Boao Forum for Asia.

Zhou said Beijing is in talks with Japan and European and ASEAN countries about bilateral trade and investment agreements, but is "waiting for the U.S. new administration to decide" how to move forward on agreements.

The governor also said that he expects to see more countries start to emphasize fiscal policy and structural reform as the period of loose monetary policy ends.

Chinese policymakers have emphasized the need to focus on structural reform over purely high-speed growth. The PBOC has moved to a tightening bias in an effort to squeeze speculators and control asset bubbles, raising primary money market rates several times since late January.

Zhou said China's reforms need to include streamlining the fiscal relationship between central and local governments.

"We need to figure out the central and local government relationship," he said.

"Different provinces have different fiscal indicators. Some provinces are already over-indebted but some still have room."

Zhou added that China's central government debt-to-GDP ratio is not very high.

Beijing tightened controls in recent years on local government debt to contain risks from an earlier borrowing binge aimed at softening the impact of the global financial crisis.

This year, China has capped the size of outstanding local government debt at 18.8 trillion yuan (2 trillion pounds), up from the 17.2 trillion ceiling in 2016, excluding bonds issued under a debt swap scheme.

Friday, 24 March 2017

The dollar edged up against the yen on Friday, recovering from its worst run of daily losses versus the safe-haven currency since 2010, but gains were capped by worries that U.S. President Donald Trump was on course for defeat on a new healthcare bill.

With a risk-averse mood having taken hold across markets this week on doubts over Trump's ability to deliver the fiscal and economic reforms that had driven bets on higher growth, inflation and interest rates, the greenback slipped 1.3 percent against the yen to four-month lows.

And though the dollar edged up 0.2 percent to 111.19 yen on Friday, it has still fallen over 3 percent over the past fortnight -- its worst showing since early August 2016 -- as the so-called "Trumpflation trade" has faded.

Lawmakers in U.S. Congress will vote on new healthcare legislation later on Friday, but it was not clear late on Thursday evening that Trump and the Republican leaders who crafted the bill had enough support to pass it.

That means that Trump now risks defeat in his first attempt at major legislation reform, and may fail to deliver on a key campaign pledge to replace Obamacare.

Postponement of the vote from Thursday initially knocked the dollar and stock markets, but the dollar was given breathing space as Treasury yields turned higher after Wall Street shares trimmed losses to close little changed.

"There is still a risk that the vote fails today,(and) there are numerous other uncertainties that suggest anything but a smooth course ahead for implementing the much anticipated tax reform reflation program," said MUFG currency strategist Derek Halpenny, in London.

"We still expect a much smaller tax cutting program simply due to the inability to agree on how a large program could be financed," he added. "The Trump reflation trade could still reverse course in a more meaningful way, resulting in dollar weakness."

Against a basket of currencies, the dollar was flat at 99.746 .DXY. It was on track to lose over half a percent this week, during which it slipped to a seven-week low of 99.547.

The euro gained 0.1 percent to $1.0798 EUR=, close to a seven-week peak of $1.0825 touched on Wednesday, on the view that the European Central Bank is heading towards tightening monetary policy amid accelerating growth and inflation rates across the euro zone.

"Centrists at the ECB are continuing to downplay the prospects of early tightening, although markets continue to price a hike in Sep 2018," wrote ING currency strategist Chris Turner.

"We’re still clinging to the view that the $1.0850 area is the top of the euro/dollar range, but that could be severely tested if the U.S. healthcare bill fails in the House today."

U.S. stocks rose in early afternoon trading on Thursday as investors snapped up beaten-down bank stocks ahead of a vote on a healthcare bill that is seen as President Donald Trump's first policy test.

Failure to pass the legislation, called the American Health Care Act, would cast doubt on Trump's ability to deliver other parts of his agenda that need the cooperation of the Republican-controlled Congress, including ambitious plans to overhaul the tax code and invest in infrastructure.

The House vote had been expected by about 7 p.m ET but there were signs the deadline could be pushed back.

"There's been a lot of optimism regarding the Trump administration so this could very well be the first setback," said Erik Davidson, chief investment officer at Wells Fargo Private Bank in San Francisco.

"What the market wants is to get through the healthcare question so that we can move on to tax reform."

The S&P 500 has gained 10 percent since the election, spurred mainly by Trump's campaign promises to enact legislation that are seen as pro-business.

The benchmark index is trading at about 18 times expected forward earnings, compared with a 10-year average of 14, according to Thomson Reuters data.

At 12:45 p.m. ET the Dow Jones Industrial Average .DJI was up 83.9 points, or 0.41 percent, at 20,745.2, the S&P 500 .SPX was up 8.91 points, or 0.37 percent, at 2,357.36.

The Nasdaq Composite .IXIC was up 16.20 points, or 0.28 percent, at 5,837.84.

Ten of the 11 major S&P indexes were higher, with the financial index's .SPSY 1 percent rise leading the advancers.

The sector, which had its worst one-day fall since June on Tuesday, has risen the most since the election.

Financial markets' immediate focus is on whether Trump can gather enough support at a vote later in the day to pass a bill to rollback Obamacare, one of his key campaign pledges.

Trump's plan faces resistance from some conservative Republicans who view it as too similar to Obamacare, and from moderates concerned it will hurt some voters.

"The vote on Obamacare is a litmus test for Trump. If he can't push through the bill (on Obamacare), it would further damage stocks. It also raises the risk of his other policies, like tax cuts, being delayed," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"So today's vote is of main importance to the currency market."

The dollar was up 0.15 percent at 111.350 yen, enjoying a bit of respite after sliding to a four-month low of 110.735 on Wednesday, when it fell for the seventh straight session.

With global equities buffeted by risk aversion this week -Wall Street on Tuesday suffered its worst day since Trump's election - the dollar has struggled notably against the yen, often sought by investors due to its perceived safe-haven status in times of market tumult.

Its safe-haven status was also seen helping the yen as Tokyo dealt with a political scandal involving Prime Minister Shinzo Abe, facing questions about his ties to a nationalist school involved in a murky land deal.

"If the situation over the prime minister's dealings with the school remains unresolved, the yen could gain further against the dollar," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The euro was little changed at $1.0792 EUR= after advancing to a seven-week high of $1.0825 overnight.

The common currency has been supported this week on growing expectations of a tightening in European Central Bank monetary policy this year, and on bets that the anti-euro candidate Marine Le Pen will be defeated in the French presidential elections.

The dollar index against a basket of major currencies was up 0.1 percent to 99.751 .DXY after its descent to a seven-week trough of 99.547 the previous day.

The pound was effectively flat at $1.2482 and in reach of a one-month high of $1.2507 scaled on Wednesday.

Sterling briefly dipped on Wednesday following what the police described as a "marauding terrorist attack" in London, but it recovered when there were no reports of other separate incidents.

The Australian dollar was down 0.3 percent at $0.7657.

The Aussie has lost about 0.6 percent this week, after a stellar 2 percent gain last week, as investors sought safe havens such as the yen, bonds and gold.

Also working against the Aussie was a steep fall in the price of iron ore - the country's top export earner.

The S&P and the Nasdaq reversed course to climb higher in afternoon trading on Wednesday, as investors sought bargains a day after the major indexes posted their biggest one-day loss since before the election.

Apple was up about 1 percent and provided the biggest boost to the three major indexes.

However, the Dow was lower, weighed down by a 6.3 percent fall in Nike after the world's largest footwear maker missed quarterly revenue estimates.

"What we're seeing today is buyers being opportunistic and trying to gain entry into the overall market," said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

"That's why we're seeing tech and industrials stocks, which last a lot on Tuesday, lead today."

Still, the market remained cautious ahead of the first major legislative test of Donald Trump's presidency.

Investors are closely watching the outcome of the healthcare bill, which Republican party leaders are aiming to move in the House as early as Thursday, as a signal to how Trump can push forward his tax cuts and simpler regulation agenda.

Trump has been trying to rally Republican lawmakers behind the plan, which will dismantle Obamacare.

Some investors fear that if the healthcare reform act runs into trouble or takes longer-than-expected to pass, then Trump's tax reform policies may face setbacks.

"The market was giving Trump somewhat of a talk-the-talk leeway," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management in Chicago.

"It was supportive of what the administration was talking about. We're starting to get into a phase where that grace period is coming to an end and what the market wants to see more walk-the-talk as opposed to talk-the-talk."

Wednesday, 22 March 2017

The euro rose above $1.08 for the first time in six weeks on Tuesday as centrist Emmanuel Macron's performance in a TV debate fuelled expectations he would win the French presidency ahead of far-right rival Marine Le Pen in May.

After four days of trading focused chiefly on expectations for U.S. interest rates and the Trump administration's attitude to trade and a stronger dollar, the euro's gains also sent the dollar index to a six-week low.

A cautious line from Federal Reserve speakers since it raised rates last week has added to signs the Trump team will have to take its time in delivering a promised fiscal boost to the economy.

There has also been an easing of some of the perceived political risks to the euro from populists such as Le Pen, who wants to take France out of the single currency, and speculation the European Central Bank will rein in its ultra-loose monetary policy later this year.

A snap opinion poll after Monday's debate showed Macron, a former economy minister who has never run for public office before, was seen as the most convincing among the top five contenders for the French presidency.

"The euro has been helped by Macron's performance definitely," said Stephen Gallo, head of European FX strategy at Bank of Montreal in London.

"I still want to buy dollars but not here. I think there will be a push higher in euro dollar in the very short run, before we would look for levels to be selling."

The euro rose 0.6 percent to $1.0808 by 1134 GMT. That pushed the index used to measure the dollar's broader strength below 100 for the first time since early February.

The euro was also 0.7 percent higher against the yen.

Sterling, a target for investors this year due to nerves over the UK economy's performance in the face of its planned departure from the European Union, jumped almost 1 percent after higher than expected inflation data.

Signs price rises are beginning to outstrip wage gains bodes ill for household budgets and consumer spending but also fuel expectations that the Bank of England may be forced to raise interest rates to support the pound.

The Bank's meeting last week shocked markets by showing one outgoing policymaker already switching to vote for higher rates and others on the verge of following if inflation and inflation expectations continue to rise.

"With the BoE now indicating it could raise rates much sooner than markets were expecting ... future downside for the pound now looks far more limited, especially as it's the pound's depreciation that has generated much of the inflationary pressures," said Oanda market analyst Craig Erlam.

Sterling rose almost 1 percent to a three-week high of $1.2474 in morning trade in London. It inched up 0.2 percent to 86.73 pence per euro.

Sterling jumped almost 1 percent to its highest level in three weeks on Tuesday, after data showed British inflation in February above the Bank of England's 2 percent target for the first time since the end of 2013.

Consumer prices rose by a stronger-than-expected 2.3 percent in annual terms, beating expectations of a 2.1 percent rise, and up sharply from 1.8 percent in January, the Office for National Statistics said.

Strong consumer spending was behind the UK economy's surprising resilience in the months immediately following Britain's unexpected vote last June to leave the European Union.

However, a plunge in the pound, which has wiped almost a fifth off its value against the dollar since the vote, has driven a rise in domestic inflation. A recent run of consumer data has shown that is beginning to weigh, with Britons less ready to spend on non-essential items.

Sterling, which had already been trading up 0.4 percent at $1.2416 before the data, rose to a high of $1.2472 - its highest since Feb. 27 - after it, up 0.9 percent on the day.

It also hit a two-day high of 86.55 pence per euro.

"The way the market is treating the data is obviously quite conventionally at the moment - that higher inflation implies greater risk of a rate hike ... and that's being taken as an immediate positive for sterling," said RBC Capital Markets currency strategist Adam Cole.

"Longer term I'm not sure that that is a particularly robust relationship when inflation is rising but wages aren't, and the net effect will be to squeeze real incomes and clamp down on consumer spending as a result."

Britain's unemployment rate fell unexpectedly to its lowest in more than a decade in the three months to January, but pay growth - an indicator the BoE is watching closely as it considers its monetary policy - worsened, in an unpromising sign for the economy ahead of its divorce with the EU.

The BoE surprised markets last week when one of its policymakers voted to lift interest rates, in a break with the consensus of keeping rates at a record low.

Some other members of the Bank's monetary policy committee also gave a hawkish tilt to the Bank's rhetoric, saying it would not take much for them to follow suit if inflation continued to shoot up.

"The print at 2.3 percent this morning...(leads) us to believe a rate hike to curb inflation could be on the table sooner than first-thought," said Alex Lydall, head of dealing at Foenix Partners in London.

European shares are expected to open slightly higher, with spread-betters seeing a rise of up to 0.1 percent in Britain's FTSE, Germany's DAX and France's CAC.

Japan's Nikkei dropped 0.3 percent, weighed by financial stocks, which were hurt by lower U.S. yields and exporter stocks, which fell on the yen's gains against the dollar.

While Asian shares have been supported by signs of strong global economic growth, concerns about protectionism cast a shadow after financial leaders of the world's biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States.

Wall Street shares drifted lower on Monday as investors worried that President Donald Trump's plan to cut taxes and boost the economy could take longer than earlier expected.

"Any fiscal spending by the Trump administration will not come until August at earliest and probably much later. So any economic benefit of that will show up only next year," said a senior trader at a European bank.

"So the markets are gradually pricing that in, winding back their initial rally after the elections."

Although Trump promised in early February to deliver a "phenomenal" tax plan within a few weeks, no such details have been released yet, with many investors now waiting for detailed budget plan expected in mid-May.

In addition, sentiment was hurt after Federal Bureau of Investigation Director James Comey confirmed for the first time that the bureau is investigating possible ties between Trump's campaign and Russia.

"U.S. stocks valuations are getting really expensive, so I expect the market to be capped for now. That also means Japanese shares are unlikely to gain further," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Expectations that the Federal Reserve will have to step up rate hikes to counter inflationary pressure from Trump's stimulus are also waning after the Fed dropped no hints of an acceleration in credit tightening last week.

Chicago Federal Reserve President Charles Evans, in one of the first official comments after the Fed raised rates as expected last week, reiterated that message on Monday.

He said that two more interest rate hikes this year were likely, disappointing investors who had anticipated rates to be increased more quickly. Evans's comments helped to bring down the 10-year U.S. Treasuries yield to 2.461 percent, its lowest level in two weeks. It last stood at 2.479 percent.

Lower yields undermined the greenback's allure, softening the dollar to three-week lows near 112.26 yen in early Asian trade.

The euro ticked up to $1.0758, near Friday's six-week high of $1.07825, maintaining its gains made last week after a election defeat for Dutch far-right leader Geert Wilders, which eased broader fears of a populist drift in European politics.

In France, centrist Emmanuel Macron solidified his status as front-runner in the presidential election in a televised debate on Monday.

"At the moment, worries about the election have subsided a bit after the Dutch elections. But I expect the market to become more nervous near the election, given last year's experiences (with Brexit and the U.S. elections)," said Kazushige Kaida, head of foreign exchange at State Street.

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The dollar's index against a basket of six major currencies stood at 100.24, after hitting a six-week low of 100.02 on Monday.

The spectre of slower U.S. rate hikes has been helping high-yielding currencies.

The Australian dollar traded at $0.7706, after hitting a 4-1/2-month high of $0.7748 on Monday. It has risen 2.0 percent since the Fed's policy meeting last week.

The South African rand has gained 4.0 percent since then to a near 1-1/2-year high while the Brazilian real rose 3.2 percent.

Oil prices rose in Asia on expectations that an OPEC-led production cut to prop up the market could be extended.

Prices for front-month Brent crude futures, the international benchmark for oil, gained 0.4 percent to $51.84 per barrel.

OPEC members increasingly favour extending the output curb beyond June to balance the market, sources within the group said, although they added that this would require non-OPEC members such as Russia to also step up their efforts.

The Federal Reserve is on track to raise interest rates twice more this year after a policy tightening last week, and it could be more or less aggressive depending on inflation and fiscal policies from the Trump administration, a Fed rate-setter said on Monday.

The public comments from Chicago Fed President Charles Evans were among the first since the U.S. central bank lifted its policy rate a notch last week, as expected. It also forecast roughly two more moves in 2017 in a nod to low unemployment and some inflation pressures.

"Three is entirely possible," Evans, speaking on Fox Business Network TV, said of hikes in 2017. "As I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up."

Asked about U.S. President Donald Trump's promise to boost the economy to a 4 percent growth rate, from about 2 percent in the last few years, Evans said: "Four percent would be really an outsized number."

While that level of growth could be reached "in any given year," he said it was hard to imagine given the economy is already doing well, the labor market is "very strong," and sectors like automobile sales are at all-time highs.

Evans, who is a voter on the Fed's policy-setting committee this year and supported last week's move, also echoed a comment from Fed Chair Janet Yellen on Wednesday that suggested the central bank could try to push inflation, now at 1.7 percent, above a 2-percent target.

"There is room to get inflation up to 2 percent and in fact going beyond 2 percent a little bit to make sure we get there, and that it's a symmetric inflation objective, so that's ok," Evans said.

Monday, 20 March 2017

Asian stocks were mixed on Monday in thin trade, following Wall Street's declines and the G20's decision to drop a pledge to avoid trade protectionism, while the Federal Reserve's less hawkish-than-expected comments continued to weigh on the dollar.

European stocks are set for a subdued start, with financial spreadbetter IG Markets expecting Britain's FTSE 100 to open little changed and Germany's DAX to open 0.3 percent lower.

Australian shares closed down 0.36 percent. South Korea ended the day 0.35 percent lower. Japan is closed for a holiday.

The MSCI emerging markets index added 0.4 percent to hit its highest level in more than two years on Monday.

Investor sentiment towards emerging markets, while cooling, remains positive. Emerging market equity funds had their sixth straight week of inflows in the week ending March 15, but the pace slowed. They had net inflows of $215 million, compared with nearly $1 billion the previous week, according to Thomson Reuters data.

On Friday, Wall Street was flat to negative, dragged lower by bank shares that fell along with Treasury yields.

Financial leaders from the world's biggest economies reiterated their warnings against competitive devaluations and disorderly foreign exchange markets at the meeting in the German town of Baden-Baden over the weekend.

But they failed to agree on a commitment to keep international trade free and open, highlighting a global shift towards protectionism.

On Sunday, German Chancellor Angela Merkel and Japan's Prime Minister Shinzo Abe defended free trade, calling for a trade deal to be reached quickly between Japan and the European Union and distancing themselves from protectionist rhetoric coming from the Trump administration.

"Essentially (the G20 outcome was) a result of the U.S. protectionist stance, something Trump has been very clear on and the market is well aware of this," said James Woods, global investment analyst at Rivkin Securities in Sydney.

"Importantly we saw other leaders such as Shinzo Abe and Angela Merkel come out publicly supporting free trade, and for now the protectionist stance remains constrained to the U.S. It would be more concerning if this began spreading to other countries."

The dollar didn't react to the statements from the meeting, hovering close to its near-three-week low touched on Friday. It traded almost 0.2 percent lower at 112.54 yen, its fourth straight day of declines after the Fed reiterated plans for three rate hikes this year, fewer than the four markets were expecting.

The dollar index, which tracks the greenback against a basket of six trade-weighted peers, slipped 0.1 percent to 100.17, after earlier touching a 5 1/2-week low.

Markets are focussed on a raft of speeches by Federal Reserve officials this week, including Chicago's Charles Evans on Tuesday and Friday, Chair Janet Yellen on Thursday, Dallas's Robert Kaplan and Minneapolis's Neel Kashkari on Friday and New York's William Dudley on Saturday.

The euro climbed 0.2 percent to $1.0763, riding investor relief over the Netherlands election defeat of anti-European Union candidate Geert Wilders that boosted it to a near-six-week peak on Friday.

Attention now turns to the French election, with the first Presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine Le Pen by a hair in first-round voting, before beating her in the run-off.

In commodities, oil prices continued their downward trend as OPEC supplies remained steady despite touted cuts and rising U.S. drilling contributed to concerns about a supply glut.

U.S. crude dropped almost 1 percent to $48.32 a barrel.

Global benchmark Brent fell 0.6 percent to $51.41.

The weaker dollar boosted gold, which rose 0.5 percent at $1,234.54 an ounce, after touching a two-week high earlier in the session.

Sunday, 19 March 2017

Financial leaders from the world's biggest economies found common ground on foreign exchange at a G20 meeting on Saturday but failed to agree on trade, highlighting a global shift towards protectionism and setting a cautious tone for financial markets next week.

The Group of 20 powers meeting in the German spa town of Baden-Baden reiterated their long-standing warnings against competitive devaluations and disorderly FX markets, allaying fears that the new U.S. administration might have opened up a chink in the G20's united front on global currency policy.

For markets, no change to G20's stance on FX is welcome news. Having the world's financial and economic powers on the same page should help keep FX volatility low, a cornerstone for stable markets and rising asset prices more broadly.

But failure to agree on a commitment to keep global trade free and open will have negative consequences for financial markets, even if not dramatically so immediately.

"We may open on Monday with modest dollar weakness thanks to the failure to agree on trade, but it would have been a lot worse if there were major changes to the FX language on top of that," Tim Graf, managing director and head of macro strategy EMEA at State Street in London, said.

The dollar has slipped recently even though the Federal Reserve has raised U.S. interest rates, because longer-term bond U.S. yields have eased back. The dollar had its biggest weekly fall for two months last week.

Similarly, the upward momentum on Wall Street has fizzled out this month after a string of record highs, although European markets have continued to advance.

The pullback in longer-term yields despite a rise in shorter-term yields suggests investors think growth and inflation are not strong enough for the Fed to lift rates much further. This so-called "flattening" of the yield curve has weighed on stocks and the dollar.

An initial draft of the G20 communique earlier this month had removed almost all of the boilerplate language on FX from previous communiques. It had removed warnings against "excess volatility" and "disorderly" FX moves as well as a pledge to refrain from "competitive devaluations".

They were all reinstated.

G20 and G7 communiques have long stated that stable and strong growth is best fostered by stable and calm currency markets.

The level of implied volatility in the euro/dollar exchange rate over the next month fell last week to 6.075 percent, its lowest in two and a half years. One-month dollar/yen implied volatility hit its lowest in over a year.

According to economists at JP Morgan, one of the main reasons for the depressed volatility across financial markets currently is because volatility in global growth is now the lowest in at least half a century.

FREE TRADE

Yet one sentence from last year's G20 communique - the shortest and one of the most important - was omitted: "We will resist all forms of protectionism."

This points to a fundamental disagreement between the U.S. administration and the other 19 participants, particularly the Europeans, who flatly rejected any form of protectionism.

U.S. Treasury secretary Steven Mnuchin said that the previous communique was not necessarily relevant to the current global economic climate from his point of view. He said he favored "free" trade but some agreements might need to be renegotiated.

administration, the implementation of protectionist policies and reality of trade wars are not immediate concerns, analysts say.

"This G20 is not really a big deal for the market, partly because the language on FX was maintained," Kenneth Broux, head of corporate research, FX and rates at Societe Generale, said.

"The disagreement on trade and protectionism is new, but the meeting at a later date between U.S. President Donald Trump and Chinese premier Li could be more pertinent to where trade negotiations are headed," Broux said.

Washington may have signed up to the language on FX, but it is widely believed that it wants a weaker exchange rate. It blames the persistent U.S. trade deficit, manufacturing decline and lack of competitiveness on the dollar's strength.

In January a closely-watched measure of the dollar's trade-weighted value hit a 14-year high. President Trump and some of his key advisors have accused Germany, Japan and China - three of America's biggest trading partners - of exploiting weak exchange rates to their competitive advantage.

Some analysts warn that the U.S. administration will soon bring exchange rates back to the top of its economic policy agenda.

"The U.S. administration's team is not yet in place, so its ​​foreign exchange policy is not yet settled. The signs don't look good ... and we need to be wary of discussions inside the U.S. administration as well as remarks by its key people," Tsuyoshi Ueno, senior economist at NLI Research Institute, said.

Reference: Jamie McGeever

In addition, finance leaders of the world's top economies have agreed to review banking rules, but this does not automatically mean hard-fought financial market regulation will be rolled back, Bundesbank President Jens Weidmann told Reuters on Sunday.

The new U.S. administration has argued that excessive bank regulation is holding back lending and economic growth, raising the prospect that rules could be loosened, putting efforts to finalize a new global banking accord, known as Basel III, at risk.

Answering questions after a two-day meeting of the G20 finance ministers and central bank governors in the German town of Baden-Baden, Weidmann said in written comments:

"At our meeting we agreed to look more closely at the actual impact of the reforms after the comprehensive regulatory efforts in the financial sector."

The G20 members would review whether intended goals had been achieved and whether there were any unintended side effects of the jointly agreed banking rules, Weidmann said.

"But this is something quite different from rolling back the regulation," Weidmann said.

The head of the German central bank said he had doubts that hopes would materialize that economic growth could be stimulated on a broad basis by rolling back financial market regulation.

"The financial crisis has shown us painfully what great overall economic damage can be inflicted through insufficiently regulated financial markets," Weidmann said.

Asked if the G20 gathering in Baden-Baden revealed more conflicts than at previous meetings, Weidmann said: "Especially when differences of opinion exist, a forum such as the G20 proves to be particularly valuable. In this respect I would speak less of conflicts than of an open, helpful exchange of opinions and an intense struggle for a common position."

Weidmann said it was clear that the G20 members still had a lot of discussions about trade and its role for prosperity ahead of them.

But he called it a success of the German G20 presidency that the financial leaders in Baden-Baden adopted a non-binding list of principles to boost the resilience of their economies against future shocks.

Acquiescing to an increasingly protectionist United States, the G20 finance ministers and central bank governors dropped a pledge in the main communique to resist protectionism and keep global trade open.

The failure of the world's financial leaders to keep established language supporting free trade marks a setback for the G20 process and poses a risk for growth of export-driven economies such as host Germany.

Friday, 17 March 2017

Asian stocks advanced on Friday and looked set for their best week since July, while the dollar extended a slide that began after the Federal Reserve indicated it was unlikely to speed up monetary tightening.

Financial spreadbetters predicted a muted start to European stocks after Thursday's strong gains, with Britain's FTSE and Germany's DAX expected to open 0.1 percent lower and France's CAC 40 seen starting the day flat.

The dollar index, which tracks the greenback against a basket of six trade-weighted peers, retreated 0.2 percent to 100.18. It hit a five-week low on Thursday, and is down 1 percent for the week.

The dollar was steady at 113.32 yen but is on track to post a 1.2 percent loss for the week.

While the Fed raised interest rates by 25 basis points on Wednesday as widely expected, it kept its original forecast of three rate hikes this year, disappointing investors who were expecting a bump up to four after a string of upbeat U.S. economic data.

U.S. Treasury yields, which slid after the decision, staged a recovery on Thursday and continued to rise on Friday.

The 10-year yield was at 2.5313 percent, from its last close of 2.524.

"The story in global markets over the past 24 hours has centered on a broad-based tightening of monetary policy conditions (and the perception of future tightening)," Chris Weston, chief market strategist at IG in Melbourne, wrote in a note.

Markets are also keeping an eye on the Group of 20 finance leaders' meeting in Germany this weekend, where topics including protectionism, exchange rates and reforms to boost economic growth are expected to be on the agenda.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent and were on track to end the week with a 3.5 percent gain, its biggest increase since the week ended July 15.

Chinese stocks slipped 0.6 percent as investors sought more evidence of a sustainable economic recovery, but indexes were set for a 1 percent increase for the week.

Hong Kong's Hang Seng index touched its highest level since August 2015 on Friday. While up only marginally on the day, it was on track for a 3.2 percent gain for the week, its biggest since September.

MSCI's all-country world stock index held near Thursday's all-time high on Friday, on track to end the week 1 percent higher.

Overnight, Wall Street was subdued following strong gains after the Fed's rate decision. The Nasdaq was flat, while the Dow and the S&P 500 posted losses.

But European shares were upbeat following the election victory of Dutch Prime Minister Mark Rutte, who defeated anti-immigration, anti-European Union rival Geert Wilders.

"Shares remain vulnerable to a short-term pull-back as investor sentiment toward them is very bullish and a lot of good news has been factored in – but there is a risk that any pullback may not come until seasonal weakness kicks in around May," Shane Oliver, head of investment strategy at AMP Capital, wrote in a note.

The euro, which touched its highest level in 5-1/2-weeks early on Friday, hovered near that level at $1.0773, after two days of strong gains. It is set to end the week up 0.9 percent.

Sterling was steady at $1.2358. On Thursday, it jumped to a two-week high after a decision by the Bank of England to hold interest rates steady, while hinting it might raise them soon.

A Bank of England policymaker surprised investors by breaking ranks and voting to raise interest rates and some others said it would not take much for them to follow suit, the BoE said on Thursday, signalling a potentially bigger split soon.

Kristin Forbes, who is due to leave the BoE in June, cast the sole vote in favour of raising Bank Rate to 0.5 percent, the first Monetary Policy Committee split since last July.

The other eight MPC members all opted to keep rates at 0.25 percent to help the economy as Britain prepares to leave the European Union.

The majority view showed the BoE remained in no hurry to follow the U.S. Federal Reserve which raised rates on Wednesday.

BoE Governor Mark Carney said last month that Britain's economy faced "twists and turns" on the road to Brexit.

But sterling jumped a full cent against the U.S. dollar to hit its highest level since March 1 on the news that more MPC members might vote for a rate hike soon. The yield on 10-year British government bonds hit their highest level in a month.

"It's definitely a shift," Ross Walker, an economist at RBS said. "It takes us to a point where there will probably be more dissent sooner than expected, unless of course the economy deteriorates more quickly than the Bank set out in February."

Adding to a hawkish shift in some of the Bank's tone, the BoE edged up its forecast for economic growth in the first quarter to 0.6 percent.

No economist taking part in a Reuters poll had predicted that a MPC member would vote to change rates this month.

Before Thursday's meeting, most economists expected no BoE rate hike until 2019, when Britain is due to leave the EU. But some analysts sounded less sure after the announcement.

"With the global data shifting up a gear, it is imperative that UK growth slows discernibly this year in order to prevent a potential rate hike later in the year," JP Morgan economist Allan Monks said, although he said he thought a rate hike in 2017 remained unlikely.

Vatsala Datta, a fixed income strategist at RBC, said investors were pricing a nearly 50 percent chance of a rate hike early next year, up from about 30 percent earlier this week.

Goldman Sachs said it no longer expected the BoE to expand its bond-buying stimulus programme again this year.

SIGNS OF SQUEEZE

Britain's economy surprised the BoE and almost all other economists last year when it withstood the initial shock of the Brexit vote.

Last month, the BoE said it expected the economy to grow by a relatively strong 2.0 percent this year but was likely to slow after that due to uncertainty about the country's future ties with the EU which buys about half of Britain's exports.

This week, most of its policymakers pointed wage growth that was "notably slower" than they had thought and "some signs that the squeeze in households' real income growth was feeding through into spending" as inflation picks up on the back of the post-Brexit vote fall in sterling.

However, among the eight-strong majority, "some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," the minutes said.

Analysts said Ian McCafferty, who voted for a rate hike in early 2016, was the most likely MPC member to join Forbes. Other candidates included Michael Saunders who sounded upbeat about the economy in a speech he made in January.

Forbes, who is due to return to her career as a U.S. academic after leaving the BoE in June, had previously signalled that she was getting uncomfortable with keeping rates on hold.

Thursday, 16 March 2017

The dollar nursed painful losses in Asia on Thursday while sovereign bonds savored their biggest rally in nine months after the Federal Reserve hiked interest rates, as expected, but signaled no pick-up in the pace of tightening.

The euro got an added bonus when returns showed the anti-EU party of Geert Wilders won fewer seats than expected in Dutch elections, soothing fears that public opinion was swinging inexorably toward a break-up of the union.

The sigh of relief was heard across Asia as investors had feared faster U.S. hikes and more political upheaval in Europe could spook funds out of emerging markets.

Spread betters pointed to solid opening gains for European bourses, while E-mini futures for the S&P 500 edged up another 0.1 percent.

South Korea's market climbed 0.6 percent, and even Japan's Nikkei managed a slight rise despite the damage done to exporters by a firmer yen.

Shanghai stocks added 0.7 percent with investors seemingly untroubled as China's central bank raised short-term rates for the third time in as many months.

The Dow had ended Wednesday with gains of 0.54 percent, while the S&P 500 added 0.84 percent and the Nasdaq 0.74 percent.

The Fed lifted its funds rate by 25 basis points, as expected, to a range of 0.75 percent to 1.00 percent, but said further increases would only be "gradual."

Crucially, officials stuck to their outlook for two more hikes this year and three more in 2018, when many had expected an accelerated spate of moves.

Rather, the Fed said its inflation target was "symmetric," indicating that after a decade of below-target inflation it could tolerate a quicker pace of price rises.

That was painful news for bond bears who had built up huge short positions in Treasuries in anticipation of a hawkish Fed.

DOLLAR DOLDRUMS

Yields on two-year notes were down at 1.30 percent, having fallen 8 basis points overnight in the biggest daily drop since June last year.

The drop pulled the rug out from under the dollar, which sank to a three-week low of 100.510 against a basket of currencies.

The euro was taking in the view at $1.0727, having climbed 1.2 percent overnight in its steepest rise since June. The dollar suffered similar losses on the yen to huddle at 113.38.

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Richard Franulovich, a forex analyst at Westpac, noted history showed a strong positive correlation between the dollar and yields one week after a Fed meeting and the direction and magnitude of the change in policymakers' projected rate increases - termed dots - from meeting to meeting.

"The absence of any overt hawkish guidance from the Fed and their dots should leave the dollar trading on the back foot over the next month," he said.

The yen and the Swiss franc tended to move the most in the first week, he added, but the impact tended to be longer lasting on the Australian and Canadian dollars.

The Aussie currency did indeed rise a rousing 2 percent in the wake of the Fed, but took a slight knock on Thursday when local data showed the country's jobless rate hit a 13-month peak in February.

A protracted bout of weakness for the U.S. dollar would be seen as positive for commodities priced in the currency.

Spot gold was up at $1,225.13 an ounce, after enjoying its biggest daily jump since September.

U.S. crude futures rose 27 cents to $49.13 per barrel, adding to a 2.4 percent gain on Wednesday. Brent firmed 31 cents to $52.12, after rising more than a dollar overnight.

The dollar edged lower on Wednesday, as investors awaited a widely-expected interest rate increase from the Federal Reserve, but grew cautious about the rate outlook this year given lingering uncertainty with the Trump administration's fiscal policy.

Fed fund futures have factored in a 94 percent chance of a rate rise on Wednesday. The focus has now shifted to whether the Fed is set for regular quarterly rate increases.

"There may be disappointment that the 'dot plots' are not going to rise much higher and therefore the language from the Fed may be more dovish than what they let on last week," said Jeremy Cook, head of currency strategy at FX payments company World First in London.

"There is still so much uncertainty toward fiscal policy in the United States," he added.

The so-called "dot plot" refers to the Fed's interest rate projections. Currently, the Fed's "dot plot" calls for three hikes this year.

In late morning trading, the dollar index slipped 0.1 percent to 101.57

Cook said the market needs to see four members of the Federal Open Market Committee shift their outlook higher to get a significant change in the 2017 median "dot plots."

Against the yen, the dollar was flat at 114.74, well below last week's 115.51 peak, its highest since Jan. 19, as expectations built for the rate increase.

The dollar drifted higher earlier after data showed a steady increase in inflation, with the consumer price index posting its biggest year-on-year gain in February in nearly five years.

In the 12 months through February, the CPI accelerated 2.7 percent, the largest year-on-year growth since March 2012.

The Bank of Japan also began a two-day policy meeting on Wednesday. It is expected to hold its policy steady and stress that inflation is nowhere near levels that justify talk of withdrawing its massive stimulus.

Sterling gained to a week's high of $1.2258, rebounding from the previous day's eight-week low hit on worries of a painful and prolonged Brexit. The pound was last up 0.4 percent at $1.2202, although it dipped earlier below $1.22 after UK data showed wage growth slowed in the three months to January.

The euro, meanwhile, rose 0.3 percent to $1.0629, as concern about Wednesday's Dutch parliamentary election was offset by market speculation the European Central Bank may be ready to wind down its stimulus programme.

The Dutch vote, taking place amid a diplomatic row between the Netherlands and Turkey, is being closely watched as a test of populist and anti-immigrant sentiment in Europe, before national elections in France next month and in Germany in September.